UK Markets open in 2 hrs 16 mins

BT’s share price is climbing. Should I buy the stock now?

Roland Head
·3-min read
Financial technology concept. Stock market crash.
Financial technology concept. Stock market crash.

Has the BT Group (LSE: BT-A) share price now bottomed out? I think it’s possible. As I write, the shares are up by about 14% on one week ago. BT has also upgraded its profit guidance for the year and is benefiting from the vaccine boost being felt across the market.

When I looked at BT in September, I was cautiously optimistic. Since then, the company has published a solid set of half-year results and reiterated its commitment to restart dividend payments next year. With a 6.6% yield on offer, I’m thinking about buying it.

Bigger and faster

Despite the impact of Covid-19 this year, BT appears to be making good operational progress, having upgraded its fixed and mobile networks.

Rollout of fibre-to-the-premises (the fastest type of broadband) reached 40,000 premises per week during the three months to 30 September. So far, 3.5m premises have been passed. The number of consumers signing up for this service is up by 60% compared to last year. I’d guess this number may have been boosted by the shift to home working.

Mobile coverage may seem less important now, but BT is pressing ahead with the rollout of its 5G mobile network. The new service is now available in 112 towns and cities. In time, I’m sure we’ll take 5G for granted, just as 3G/4G coverage is the norm now.

I’m pleased by this news. If BT’s profits (and its share price) are to return to growth, I think the group needs to maintain a technical lead over its rivals and make the most of its dominant market share.

Profits guidance improving

Network upgrades don’t come cheap. BT’s capital expenditure rose by 5% to £1,969m during the first half of the year. Spending for the full year is expected to be between £4.0bn and £4.3bn.

However, BT Group CEO Philip Jansen’s decision to suspend dividend payments this year has helped to steady the group’s financial position. Despite higher spending and an 8% drop in revenue during the first half, BT’s net debt fell by £720m to £17,627m during the period.

Indeed, Jansen now seems to feel that his worst-case outlook for the year can be avoided. He’s upgraded profit guidance for the current year. The company now expects to generate adjusted EBITDA of at last £7.3bn in 2020/21, up from £7.2bn previously.

I admit that this is only a small improvement, but it’s a step in the right direction.

BT share price: I’d buy

BT isn’t out of the woods yet. But I’m reassured by the progress being made in an unusually difficult year. If it can convert this momentum to revenue growth after the pandemic eases, then I think the BT share price could perform well on a medium-term view.

There’s also the dividend to consider. Losing the payout this year was a bitter blow for shareholders. But I think Jansen’s done the right thing. The old dividend cost around £1.5bn each year. It just wasn’t affordable, in my view.

By skipping a year and then reinstating the payment at 7.7p (a 50% cut), I think he’s laying the foundations for a more sustainable payout in the years ahead. The reduced payout should still give a yield of nearly 7%, with the share price at current levels. That looks tempting to me.

The post BT’s share price is climbing. Should I buy the stock now? appeared first on The Motley Fool UK.

More reading

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020